Question
The table below is the combined balance sheet for all the banks in a banking system. Each bank has a target reserve ratio of 4%.
The table below is the combined balance sheet for all the banks in a banking system. Each bank has a target reserve ratio of 4%.
Assets(1)(2)Liabilities / Equity(1)(2)Reserves$250$$Demand deposits$3,500$$Loans1,850Shareholders' equity300Securities1,350Fixed assets350Total$3,800Total$3,800
a. Fill in the blanks in columns (1) reflecting the complete effect of all excess reserves being loaned out.
b. The maximum possible increase in the money supply is $.
c. Returning to the original balance sheet, if the target reserve ratio changes to 10%, the quantity of loans the system be forced to call in will be $.
Write in the figures in columns (2) that show this process completed.
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